A free-trade agreement is unlikely to result in which of the following outcomes?

• A. A reduction in market competition among participating countries
• B. Enhanced efficiency in resource allocation
• C. Greater consumer choice and lower prices
• D. An increase in negative externalities due to higher production

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of a free-trade agreement (FTA). An FTA is designed to reduce or eliminate trade barriers such as tariffs and quotas between participating countries, promoting increased trade and economic integration.
2. Step 2: Analyze the typical outcomes of FTAs. These usually include enhanced efficiency in resource allocation because countries specialize according to comparative advantage, greater consumer choice due to access to a wider variety of goods, and often lower prices resulting from increased competition and economies of scale.
3. Step 3: Consider the effect of FTAs on market competition. Since FTAs encourage trade and reduce barriers, they generally increase competition among firms from different countries rather than reduce it.
4. Step 4: Evaluate the possibility of increased negative externalities. Higher production and trade can sometimes lead to more environmental or social externalities if regulations are weak, so this outcome can be plausible under certain conditions.
5. Step 5: Conclude which outcome is unlikely. Since FTAs promote competition, a reduction in market competition among participating countries is not a typical result of such agreements.